Freeze in grain exports may open up new markets for the country’s wheat crop

Russia’s current economic woes could end up benefiting Argentina with an increase in both grain exports and the price of commodities, which have steeply dropped over the past few months, as a result of Moscow’s decision to pull back from international grain markets to cool domestic prices.

Russia, one of the world’s leading grain suppliers, decided to restrict exports as plunging oil prices and Western sanctions hammer the ruble, pushing up inflation. The country has slowed down shipments by denying certificates that grain sellers and buyers need after sanitary inspections.

The decision is likely to push up the price of commodities such as soybean and wheat.

An increase in prices in key export grains would lead to an increase the amount of dollars brought on by agriculture exporters to Argentina, which, in turn, would lead to a boost in the Central Bank’s coffers.

At the same time, the country could fill the spaces left by Russia in the international grain markets, especially by increasing its wheat exports.

In order to do that, however, more flexible exports would be needed, experts warn.

“Price of grain commodities are set to increase soon due to Russia’s decision. The scenario of dropping prices we have seen over the past few months will come to an end,” Néstor Aleksink, executive director of the Argentina Exporta consultancy, told the Herald. “The government placed many barriers on grain exports so more flexibility is needed if we hope to increase them.”

The scenario seems to be changing in that direction as Argentina approved last week one million tons of 2014-15 wheat for export in addition to the 1.5 million cleared last month. In a sign that the country will be able to take advantage of the new markets, the government increased its estimate for next year’s wheat harvest from 12 million tons to 13.2 million, a figure much higher than the nine million tons that are estimated to have been harvested this year.

“There aren’t many wheat-producing countries in the world but Russia and Argentina are on that list, as well as the United States and Ukraine. Fewer exports from Moscow will send the price of wheat up and create an opportunity for Argentina to increase its exports,” Mauricio Claveri, trade specialist at the Abeceb consultancy, told the Herald. “More dollars could be brought in due to this scenario.”

Argentina could also see an increase in its soybean meal exports to Russia, experts said. The wheat that is not exported by Moscow could end up being used in their poultry production jointly with soybean meal. Russia’s poultry industry is quite new but has been increasingly growing over the past few years.

“Their poultry industry could become more competitive thanks to the wheat they won’t be exporting and the cheap corn they currently produce. They could use the wheat to feed their chickens but to do that they need protein meal, which could be provided by Argentina,” Martín Fragio, head of Maizar, which groups corn and sorghum producers, told the Herald.

A growing sector

Hitting the brakes on grain exports was probably a hard decision to take for Russia as the country’s grain exports have surged this season about 33 percent from last year, according to government data. Russia’s wheat production this year was 60 million metric tons, the most in five years, according to the International Grains Council.

But the plunge on the ruble, which has fallen 45 percent this year, means farmers are less willing to sell their grains. President Vladimir Putin said yesterday at an annual news conference that the Central Bank shouldn’t waste reserves on the market to help protect the currency and told Russians to brace for recession.

Russia has been denying certificates for grain destined for countries other than Egypt, Turkey, India and Armenia, according to a letter from the National Association of Exporters of Agriculture Products, addressed to Deputy Prime Minister Arkady Dvorkovich. The trade group called the move a “covert form” of export restrictions.

Alongside Argentina, the European Union, already on course to a second season of record wheat exports, should take over many of Russia’s markets, with favourable exchange rates helping member countries to move their hefty harvests. The prospects sent Euronext futures to more than seven-months highs yesterday.

France, traditionally the EU’s largest exporter of wheat, should also benefit but to a lesser extent due to a drop in quality this season. Ukraine, the other major key player in the Black Sea region, should also see a boost in prices and demand but any benefit would be capped by a lack of export availability. The country has planned to export 9-10 million tons of wheat this season, of which 7.75 million tons had already been shipped.

Egypt, the world’s top importer and the second largest buyer of Russian wheat, said yesterday it was confident Russia would honour all its wheat import contracts and would continue to include Russian wheat as an origin in its international tenders. But traders were wary, as it was not clear whether Egypt was included in the Russian curbs, none of which have officially been announced.